HCL net up 9% to Rs 510.5cr in June quarter

New Delhi :HCL Technologies Ltd posted a 9% growth in net profit to Rs510.5 crore for the April-June quarter over the preceding three months. Over the year-ago quarter, net profit increased 51.7%.

The profit growth comes on the back of higher productivity and foreign exchange gains despite a higher provision for tax on expiry of the tax holiday scheme for the Indian information technology (IT) industry and a challenging macroeconomic climate.

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Revenue increased 3.9% over the preceding quarter and 27.5% over a year ago to Rs4,300 crore.

Vineet Nayar, vice-chairman and chief executive officer of HCL Technologies, said that while “the macroeconomic climate looked worrisome”, the company expected growth to come from vendor consolidation or from a “lot of churn in the market”.

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The company reported an Ebit margin of 15.5%, keeping its promise of raising it to year-ago levels and improving on the 14.5% margin in the March quarter.

Ebit is earnings before interest and taxes and is a measure of operating profitability.

The numbers, though, slightly disappointed the street. The company’s stock closed at Rs502.85, down 2.32% on the Bombay Stock Exchange on Wednesday.

The benchmark Sensex index fell 0.46% to 18,432.25 points.

Nimish Joshi of brokerage CLSA Asia-Pacific said HCL’s sequential revenue growth of 3.9% “is below street expectations and the miss, a first for HCL on the top line after many quarters”.

HCL’s margins will come under pressure following wage hikes in July, Joshi said.

HCL Technologies increased salaries by 12-14% for offshore employees and by 2-4% for onsite employees from 1 July.

It expects its operational margin to fall by about 300 basis points (bps) in the next quarter.

A basis point is one-hundredth of a percentage point.

Dipen Shah of Kotak Securities was more positive on the company. “HCL’s results were in line with our estimates. The 120 bps improvement in operating margins was positive,” he said.

HCL signed 20 transformational deals in the June quarter with companies such as Xerox Corp., Mecom Group Plc, Deutsche Bank AG and Yahoo Inc.

HCL’s deal flow looks promising as companies in the US and Europe are spending on outsourcing to cut costs, said Nayar.

“The October-December quarter is going to be the largest in terms of deal volumes for the industry,” he said, but ruled out increases in billing rates.

“Customers are under extreme pressure and dreaming of price cuts. I see no opportunity for price revisions.”

During the year, the company added around 12,500 employees, taking its total headcount to 77,046 people.

On the controversy over whether HCL was asked by Rupert Murdoch’s News International Ltd—which is one of its clients—to delete its emails, Nayar said, “We do not have any of their emails on our servers in India or anywhere else in the world.”

HCL Technologies was mentioned in the phone-hacking controversy in the UK over reports that News International’s email data had been destroyed in the software company’s office in India.